Does Money Buy Happiness?

Global happiness studies often involve two measures -- how people see their lives and how they live their lives. Both concepts are rooted in behavioral economics.

How people reflect on their lives is very different from how people live their lives. For example, if you interview two women -- one with a child and one without a child -- which one has more stress? On average, it's the woman with the child. But if you asked them to rate their overall lives, whose rating is higher? It's also the woman with the child. So, the woman with more stress also rates her life higher.

This is exactly why we need to measure both life satisfaction and emotions.

So how does money influence both measures?

One of the most famous studies on this question was conducted by Nobel laureates Daniel Kahneman and Angus Deaton. They found that the more money Americans make, the higher they rate their lives. So, if happiness is how people see their lives, then money makes people happier.

This is also true internationally. The richer the country, the higher people typically rate their lives, according to the annual World Happiness Report issued by the United Nations. However, researchers at Purdue University and the University of Virginia recently found that worldwide, there appears to be a satiation point with respect to income -- about $100,000 -- and that being too rich might actually make you see your life a little worse.

But how does money affect how people live their lives? The Kahneman and Deaton study found that money has less of an effect on how people live their lives above incomes of $75,000 in the U.S. And the Purdue and University of Virginia researchers found the cap for emotional wellbeing was about $60,000 to $75,000 worldwide.

The variables these researchers looked at included self-reported enjoyment, smiling and laughing, rest, feelings of respect, and intellectual stimulation. They also looked at negative emotions like self-reported anger, stress, sadness, physical pain and worry. The same ones featured in Gallup's latest Global Emotions Report, released today.

So, if life isn't about getting rich, then where do the happiest people in the world live? This report suggests they might live in Latin America. Latin Americans may not always rate their lives the best (in contrast to the Nordic countries), but they laugh, smile and experience enjoyment like no one else in the world.

The answer to whether money truly buys happiness is still far from being understood, but this report gives global thinkers an idea of who is living the best and worst lives in the world.